Tag: Forex Trading Idea

FOREX TRADING IDEA EUR/JPY

Nicholas

Strategy

Buy EUR/JPY at 130.50 for 133.40. Stop at 129.20.

Technical View

Price, after hitting a high at 133.47, has been on a decline. The decline has brought price close to the Fibonacci 62%. The decline has managed to stay above the cloud, keeping the uptrend intact.  Conversion and base lines had a bullish crossover earlier and is still in a bullish trend. Lagging span confirms the bullish trend as it is above the price of 26 days ago as well as above the cloud. Elliott wave-wise, price is in a possible 4th wave correction and as long as price stays above 130.00, the bullish outlook is intact. MACD remains bullish. If price can stay above the cloud support as well as the Fibonacci 62% correction point, there is a good chance for price to re-test 133.47 again in the next few months.

Fundamental View

Currencies movements are to a certain extent determined by the country’s bond yields. Investors buy a higher currency to buy its bond for a higher yield. The Eurozone central government bond has a higher yield compared to the Japanese government bond. This warrants buying the Euro over the Japanese yen.

The European Central Bank is more likely to raise interest rate compared to the Japanese central bank. Inflation is currently running higher in Eurozone compared to Japan. With greater inflationary pressure in Eurozone compared to Japan, we can expect the European Central Bank to hike rate before the Bank of Japan.

The Eurozone economy is also likely to outperform the Japanese economy. Going by Statista estimate for 2021, the Japanese GDP is forecasted to grow 2.36% while the Eurozone economy is forecasted to grow at 4.36%. All the fundamental numbers point to buying the Euro against the yen.

Forex Trading Idea GBP/USD

Nicholas

Strategy

Buy 1.3825 for 1.4100 with a stop below 1.3710

Technical View

After reaching a high of 1.4241 on 24 February 2021, price made another attempt to push above this high but was unsuccessful. As a result, price declined to a low of 1.3627 on 20 July this year but we think this could be the end of the decline and correction. The low is also close to the Fibonacci 62% correction point of the big rally that led price to 1.4241. This could be a sign of a possible end to the correction as well. Price is now likely to push higher towards 1.4085 and maybe to the previous high of 1.4241 in the next few months ahead.

Stochastic may be declining but MACD remains bullish. The fast line of the MACD indicator could be turning around from the zero line as well, which could be a hint of a bullish price trend ahead as well.

Fundamental View

On 4 August, the Bank of England kept its cash rate at 0.1% as expected but the BOE made a decision to lower the threshold that would unwind its quantitative easing. This could be the first steps to tightening which is expected by the end of 2021. If that is the case, the Bank of England is likely to tighten before the Federal Reserve.

Federal Reserve Chairman Powell has insisted that inflation is transitory and there is still a long way before the U.S. is ready to start tapering and raise interest rate. Several Fed’s officials have started to speak up for tapering but the camp is at best mixed. Recent data from US labour to consumer inflation data have shown that there is no necessity to hike interest rate. Last Friday consumer confidence also shows consumer sentiment slumping to its lowest since 2011 amid acceleration in COVID-19 inflections caused by the fast-spreading Delta variant.

COVID-19 inflections are fast rising in the U.S. which is a worry, while the UK has more or less recovered from the pandemic. In fact, UK is reopening its economy and easing its COVID-19 restriction. Fans can now watch football matches which are likely to lift the UK economy. UK re-opening is likely to benefit the UK economy while the U.S. grasps with COVID-19 inflections.

FOREX TRADING IDEA USD/CAD

Nicholas

Strategy

Buy 1.3170 for 1.3650 with a stop 1.2940. Estimated time duration 3 months.

Technical View
After reaching a high of 1.4667 on 19 Mar 2020, price has been on a decline. Price reached a low of 1.3133 on two occasions but managed to stay above this support. The new lower lows made were marginal. This could be a sign that price is approaching a possible price bottom and a reversal is due soon. Although price is still below the 20EMA, the slope of the 20EMA has been getting flatter, hinting of a loss of downside momentum. Stochastic is in the oversold zone for some time now and recently there was a bullish crossover just below the oversold extreme.

MACD is also flat, hinting of a loss of momentum on the downside. This is another hint of a possible price low in the process of forming. The downside could be limited and price could be about to reverse and move up to the Fibonacci 50% correction point which also comes in near the previous high at 1.3720.

Fundamental View

Crude oil price has rallied from below US$10 to nearly US$40 and this has helped the Canadian dollar to strengthen against the US dollar. However, Crude oil price has stabilized just above the US$40 mark and the upside for Crude oil price could be limited due to slowdown in global economy as a result of the COVID-19 pandemic. While demand has recovered with improving COVID-19 situation and supply has been reduced in the past month to stabilize prices, supply is likely to increase should demand increase, putting a cap to upside price movement.

Bank of Canada has presented in June 2020 an outlook that is not too rosy and this is likely to cap the Canadian dollar’s strength. On the other hand, US economic data has been improving. Business activity, home sales and even PMI are improving. If these data continues to improve, the US economy is likely to improve and recover. The US dollar is likely to strengthen as a result.

The Federal Reserve is likely to keep interest rate close to zero in order to aid the economy to recover. But the Canadian central bank is also likely to keep its interest rate close to zero. Fed’s decision to keep interest rate close to zero is also likely to have been factored into the decline of the USD/CAD rate to the current low as well.